Learning Center

Planning for retirement on your own can be overwhelming. Our library of tools, topics and articles can help you learn more about important retirement topics and help you feel more knowledgeable about the decisions you need to make. Click each section of learning areas below to find helpful information.

Each of the case studies below represents a scenario where a smart portfolio withdrawal strategy made a difference in the years the portfolio lasted. Click each case to view the details. While these case studies do not represent real people, the numbers used for the purposes of illustration are real.

Couple, Age 62 with $1,500,000 in assets

Withdrawal Sequence: Couple Age 62 with $1,500,000 of Assets

This case demonstrates the additional longevity that is possible by carefully managing the location and timing of asset withdrawal.

By withdrawing funds in a tax efficient manner, they were able to extend the portfolio’s longevity by more than seven(7) years

Financial Facts:

$1,000,000 in 401(k)s

$500,000 in regular taxable accounts

Mike & Jen, Age 62 with $1,500,000 of assets

This couple began retirement in January 2010. They are wondering how long their financial portfolio may last if they spend $107,800 after taxes in 2010 and an inflation-adjusted equivalent amount each year thereafter while both spouses are alive, but 75% of that amount after the death of the first spouse.

This couple is a fictional representation of actual retirees. The numbers involved in this case study are real.

Options Compared

Option 1: What if they withdraw funds from 401(k)s first and then the taxable accounts.

Option 2: What if they withdraw funds in a tax-efficient manner from their financial portfolio. Each year, they will withdraw funds tax efficiently from his 401(k)s and taxable accounts in a fashion that is designed to increase the longevity of her portfolio, and they use a partial Roth conversion when appropriate.

With Strategy 1, the graph demonstrates that the portfolio runs out of money at the end of 2039.

In Strategy 2, the portfolio runs out of money in 2047; the portfolio provides about $78,000 of spending in 2047 and Social Security benefits provide additional funds.

By withdrawing funds in a tax efficient manner, they were able to extend the portfolio’s longevity by more than seven(7) years.

Assumptions:They maintain a 50% stocks-50% bonds after-tax asset allocation with stocks earning 9% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. His Primary Insurance Amount for Social Security is $2,500 a month and hers is $1,500 a month. They both have Full Retirement Ages of 66, begin Social Security benefits at 66, and receive their Primary Insurance Amounts. We assume one partner dies in 16 years at age 78 and the survivor lives on 75% of the real amount they lived on when both were alive. Both Strategies locate stocks and bonds in the accounts (i.e., taxable account and 401(k)s) in a tax-efficient manner, while maintaining the 50% stocks-50% bonds after-tax asset allocation. We can help clients with this asset-location decision, which may further extend the portfolio’s longevity. Based on today’s Tax Code, they will usually be in the 25% tax bracket in retirement. They take the standard deduction each year. Inflation is 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Single, Age 62 with $3,000,000 of assets

Withdrawal Sequence: Single Person Age 62 with $3 Million of Financial Assets

This case demonstrates how you can extend your portfolio’s longevity by judiciously choosing when you begin Social Security and tax efficiently withdrawing fund from your portfolio. It also presents the tradeoff as to when this single individual should begin Social Security. If he was confident that he would not live more than 20 years then he should begin Social Security early. However, even if he should decide to begin Social Security early then he should tax-efficiently withdraw his funds since it could add years to his portfolio’s longevity or allow his beneficiaries to inherit a larger amount.

By judiciously choosing when to begin Social Security & withdrawing funds tax efficiently, he was able to extend his portfolio’s longevity by more than five years.

Cyrus Age 62 with $3,000,000 of assets

He plans to retire from work this year. He has $3,000,000 in financial assets including $1,900,000 in a 401(k),$100,000 in Roth IRA, $100,000 in a non-qualified annuity, and $900,000 in regular taxable accounts. He wants to know how long his financial portfolio may last if he spends $131,000 after taxes in the first year and an inflation-adjusted equivalent amount each year thereafter.

Tim is a fictional representation of an actual retiree. The numbers involved in this case study are real.

Options Compared

Option 1: He begins Social Security at age 62 and withdraws the funds tax inefficiently.

Option 2: He begins Social Security at age 70 and withdraws the funds tax inefficiently.

Option 3: He begins Social Security at age 70 and withdraws funds in a tax-efficient manner from his financial portfolio. Each year, he will withdraw funds from his 401(k), Roth IRA, non-qualified annuity and taxable accounts in a fashion that is designed to increase the longevity of his portfolio.

We assume he maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year and bonds earning 3%, both historically conservative assumptions. Other assumptions are provided below.

In Strategy 1, he begins Social Security at age 62 and his portfolio runs out of money at the end of 2037. (The $131,000 after-tax spending was set because this is the largest amount rounded to $100 that will allow his portfolio to last through 2037.)

In Strategy 2, he begins Social Security at age 70 and his portfolio runs out of money at the end of 2038; it provides almost all the money he needed in 2038.

In Strategy 3, he begins Social Security at age 70, withdraws the funds tax efficiently from his portfolio, and it runs out of money after providing about $65,000 of his financial needs in 2043. The tax-efficient withdrawal strategy added more than four years to his portfolio’s longevity.

Altogether, by judiciously choosing when he begins Social Security and withdrawing funds tax efficiently, he was able to extend his portfolio’s longevity by more than five years.

Assumptions: He maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value and the cost basis of the non-qualified annuity is $85,000. His Primary Insurance Amount for Social Security is $2,000 a month and his Full Retirement Age is 66. So, if he begins Social Security benefits at age 62 he will receive $1,500 per month, while if he waits until age 70 to begin benefits he will receive $2,640 per month with all payments expressed in today’s dollars. All three strategies allocate stocks to the taxable account and bonds to annuity to the degree possible while maintaining the 50% stocks-50% bonds after-tax asset allocation. We assume he takes the standard deduction each year. Furthermore, we assume inflation of 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Disclaimer:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. You should consult your tax or legal advisor regarding such matters.

Single, Age 66 with $1,500,000 of assets

Withdrawal Sequence: Single, Age 66 with $1,500,000 of assets

This case demonstrates how you can extend your portfolio’s longevity by judiciously choosing when you begin Social Security and tax efficiently withdrawing fund from your portfolio. It also presents the tradeoff as to when this single individual should begin Social Security. If he was confident that he would not live beyond age 85 then he should begin Social Security early. However, even if he should decide to begin Social Security early then he should tax-efficiently withdraw his funds since it could add a few years to his portfolio’s longevity.

By judiciously choosing when he begins Social Security and withdrawing funds tax efficiently, he was able to extend his portfolio’s longevity by about six years.

Tim Age 66 with $1,500,000 of assets

He plans on retiring in January 2010. He wants to know how long his financial portfolio may last if he spends $89,450 after taxes in 2010 and an inflation-adjusted equivalent amount each year thereafter.

Tim is a fictional representation of an actual retiree. The numbers involved in this case study are real.

Options Compared

Option 1: He begins Social Security at age 66 and withdraws the funds from the 401(k) first and then the taxable account.

Option 2: He begins Social Security at age 70 and withdraws funds from the 401(k) first and then the taxable account.

Option 3: He begins Social Security at age 70 and withdraws funds in a tax-efficient manner from his financial portfolio.

Each year, he will withdraw funds tax efficiently from his 401(k) and taxable account in a fashion that is designed to increase the longevity of her portfolio. We assume he maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year and bonds earning 3%, both historically conservative assumptions. Other assumptions are provided below.

In Strategy 1, he begins Social Security at age 66 and his portfolio runs out of money in January 2035, 25 years hence.

In Strategy 2, he begins Social Security at age 70 and his portfolio runs almost runs out of money in January 2037; his portfolio provides some of his spending needs for 2037.

In Strategy 3, he begins Social Security at age 70 and withdraws the funds tax efficiently from his portfolio, and it runs out of money in 2041; his portfolio provides much of his spending needs in 2041.

Altogether, by judiciously choosing when he begins Social Security and withdrawing funds tax efficiently, he was able to extend his portfolio’s longevity by about six years.

Assumptions: He maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. His Primary Insurance Amount for Social Security is $1,667 a month and her Full Retirement Age is 66. So, if he begins Social Security benefits at age 62, he will receive $1,250 per month, while if he waits until age 70 to begin benefits then his benefits will be $2,200 per month with all payments expressed in today’s dollars. All three strategies allocate stocks to the taxable account and bonds to the 401(k) to the degree possible while maintaining the 50% stocks-50% bonds after-tax asset allocation. Based on today’s Tax Code, he will usually be in the 28% tax bracket in retirement. We assumed inflation of 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Single, Age 62 with $1,000,000 assets & high medical expenses last two years

High Medical Expenses : Single Person Age 62 with $1 Million of Financial Assets

This case demonstrates the additional longevity that is possible by carefully managing the location and timing of asset withdrawal to deal unforeseen medical expenses.

By judiciously withdrawing funds tax efficiently, she was able to deal
with her end of life medical expenses

Celia Age 62 with $1,000,000 of assets

She plans to spend $56,600 after taxes in the first year and an inflation-adjusted equivalent amount each year thereafter. She spends that amount until his health deteriorates at age 84. He spends the next two years in an assisted living facility before passing away. His after-tax spending the last two years is at an annual level of $80,000 in today’s dollars, which translates into a daily rate in the assisted living facility of $200 per day plus a little extra for incidentals. She begins Social Security at 62.

Celia is a fictional representation of an actual retiree. The numbers involved in this case study are real.

Options Compared

Option 1: She withdraws the funds tax inefficiently from her financial portfolio.

Option 2: She withdraws funds tax efficiently from her financial portfolio. Each year, she withdraws funds from his 401(k) and taxable accounts in a fashion that is designed to increase the longevity of her portfolio.

We assume she maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year and bonds earning 3%, both historically conservative assumptions. Other assumptions are provided below.

In Strategy 1, her portfolio runs out of money in 2033, her last year of life; it provides most of her needs that year but runs out of money near the end of the year.

In Strategy 2, her portfolio provides all her financial needs during her life and it has about $292,000 remaining primarily in her 401(k) at her death at the beginning of 20341. The tax-efficient withdrawal strategy allowed her portfolio to provide all her financial needs with substantial funds remaining for her beneficiaries.

One reason for the success of Strategy 2, the tax-efficient withdrawal strategy, is that it saved sufficient pretax funds in the 401(k) to offset the tax-deductible medical expenses in her last two years.

1. The Figure on the next page shows an after-tax financial portfolio value of about $248,000 at his death at the beginning of 2034. Since the portfolio contains almost only pretax funds in his 401(k), this translates into a 401(k) balance of about $292,000 of pretax funds that would be available to his beneficiaries. Unlike other advisors, our model recognizes that taxes exist. Thus each pretax dollar in a 401(k) is smaller than each after-tax dollar in say a Roth IRA. Our model also recognizes the differences in taxation amount funds in 401(k), Roth IRA, taxable account, non-qualified annuity, and other savings vehicles.

Assumptions: She maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. His Primary Insurance Amount for Social Security is $1,500 a month and his Full Retirement Age is 66. Since she begins Social Security benefits at age 62 she will receive $1,125 per month in today’s dollars. Both strategies allocate stocks to the taxable account and bonds to the 401(k) to the degree possible while maintaining the 50% stocks-50% bonds after-tax asset allocation. We assume she takes the standard deduction each year until she itemized in the last two years. Furthermore, we assume inflation of 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Disclaimer:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. You should consult your tax or legal advisor regarding such matters.

Social Security - Single, Age 62 with $500,000 of assets

Social Security Choices: Single, Age 62 with $500,000 of assets

This case demonstrates the additional longevity that is possible by judiciously choosing the date that you begin Social Security benefits.

Delaying the start of Social Security benefits from 62 to 70 added 15+ years to this portfolio’s longevity.

Ruth, Age 62 with $500,000 of assets

Ruth plans on retiring in January 2010. She wants to know how long her financial portfolio may last if she spends $36,140 after taxes in the first year and an inflation-adjusted equivalent amount each year thereafter.

Ruth is a fictional representation of an actual retiree. The numbers involved in this case study are real.

Options Compared

Ruth will follow one of five strategies that vary only in the date that she begins Social Security benefits.

Option 1: She begins Social Security benefits at 62

Option 2: She begins Social Security benefits at 64

Option 3: She begins Social Security benefits at 66

Option 4: She begins Social Security benefits at 68

Option 5: She begins Social Security benefits at 70

The Social Security starting date is the only difference.

In each Strategy, she is assumed to withdraw funds tax efficiently from her portfolio in a fashion that is designed to increase the longevity of her portfolio. She maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year and bonds earning 3%, both historically conservative assumptions.

In Strategy 1 of the Figure, Ruth begins Social Security at age 62, and her portfolio runs out of money at the end of 2034. The $36,140 after-tax annual real spending amount was set so that the portfolio barely lasts 30 years; that is, her portfolio is exhausted at the end of 2039.

In Strategy 2, she begins Social Security at age 64, and her portfolio runs out of money after providing part of her financial needs in 2042. Delaying the start of Social Security benefits from 62 to 64 added 2+ years to her portfolio’s longevity; that is, the portfolio provided funds for two full years plus part of a third.

In Strategy 3, she begins Social Security at 66, and her portfolio runs out of money in 2044. Delaying the start of Social Security benefits from 62 to 66 added 4+ years to her portfolio’s longevity.

In Strategy 4, the portfolio lasts until 2049 when she would be 101. Delaying the start of Social Security benefits from 62 to 68 added 9+ years to her portfolio’s longevity.

In Strategy 5, the portfolio lasts until 2055 when she would be 107. Delaying the start of Social Security benefits from 62 to 70 added 15+ years to her portfolio’s longevity. For Strategies 4 and 5, the Figure shows the after-tax value of her portfolio in 2048 when she would be 100 years old.

Figure 1 illustrates the costs and benefits of delaying the start of Social Security benefits. If she dies before 2027 when she would be 79, her beneficiaries would inherit the most money if she starts benefits at age 62. If she lives at least to 2031 when she would be 83, then her beneficiaries would inherit the most if she starts benefits at 68 or 70. If her major concern is not outliving her resources and being a financial burden on her children, she should delay the beginning of benefits until age 70.

Delaying the start of Social Security benefits from 62 to 70 added 15+ years to this portfolio’s longevity.

Assumptions: They maintain a 50% stocks-50% bonds after-tax asset allocation with stocks earning 9% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. His Primary Insurance Amount for Social Security is $2,500 a month and hers is $1,500 a month. They both have Full Retirement Ages of 66, begin Social Security benefits at 66, and receive their Primary Insurance Amounts. We assume one partner dies in 16 years at age 78 and the survivor lives on 75% of the real amount they lived on when both were alive. Both Strategies locate stocks and bonds in the accounts (i.e., taxable account and 401(k)s) in a tax-efficient manner, while maintaining the 50% stocks-50% bonds after-tax asset allocation. We can help clients with this asset-location decision, which may further extend the portfolio’s longevity. Based on today’s Tax Code, they will usually be in the 25% tax bracket in retirement. They take the standard deduction each year. Inflation is 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Social Security - Couple, Age 66 with $1,500,000 of assets

Social Security Choices: Couple Age 66 with $1,500,000 of assets

This case demonstrates the additional longevity that is possible by judiciously choosing the date that you begin Social Security benefits.

By judiciously choosing when they begin Social Security and withdrawing funds tax efficiently, they were able to extend their portfolio’s longevity by about five years.

Mike & Jen, Age 66 with $1,500,000 of assets

This couple is beginning retirement in January 2010. They are questioning how long their financial portfolio may last if they spend $110,000 after taxes in 2010 and an inflation-adjusted equivalent amount each year thereafter while both spouses are alive, but 85% of that amount after the death of the first spouse.

This couple is a fictional representation of actual retirees. The numbers involved in this case study are real.

Options Compared

Option 1: They both begin Social Security benefits at age 66 and withdraws the funds from the 401(k) first and then the taxable account, a very typical strategy

Option 2: The wife begins Social Security at age 66 and the higher-earning husband delays benefits until age 70, and they withdraw funds from the 401(k) first and then the taxable account.

Option 3: The wife begins Social Security at 66 and the husband begins at 70, and they withdraw funds in a tax-efficient manner from their financial portfolio. Each year, they will withdraw funds tax efficiently from his 401(k) and taxable account in a fashion that is designed to increase the longevity of their portfolio, and they use a partial Roth conversion when appropriate.

In Strategy 1 in the Figure, they both begin Social Security at age 66 and their portfolio runs out of money in January 2035, 25 years hence.

In Strategy 2, she begins Social Security at age 66 and he at 70 and their portfolio runs out of money in January 2037; their portfolio provides about $11,000 of spending for 2036 (plus Social Security benefits).

In Strategy 3, she begins Social Security at age 66 and he at 70 and they withdraw funds tax efficiently from their portfolio. It runs out of money in January 2040.

Altogether, by judiciously choosing when they begin Social Security and withdrawing funds tax efficiently, they were able to extend their portfolio’s longevity by about five years.

Assumptions: They maintain a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. His Primary Insurance Amount for Social Security is $2,500 a month and hers is $1,500 a month. They both have Full Retirement Ages of 66. In Strategy 1, they both begin benefits at 66 and receive their Primary Insurance Amounts. In Strategies 2 and 3, she begins benefits at 66, thus receiving $1,500 a month, while he delays the start of benefits based on his earnings record until age 77. He receives spousal benefits of $750 a month from age 66 until he turns 70, at which time he switches to benefits based on his record and receives $3,300 a month. We assume he dies in 13 years at age 79 and, after his death, she receive his Social Security benefits for the rest of her life. All Social Security amounts are expressed in today’s dollars. All three Strategies allocate stocks to the taxable account and bonds to the 401(k) to the degree possible while maintaining the 50% stocks-50% bonds after-tax asset allocation. Based on today’s Tax Code, they will usually be in the 25% tax bracket in retirement. We assumed inflation of 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Social Security - Single, age 66 with $1,500,000 of assets

Social Security Choice: Single, Age 66 with $1,500,000 of assets

This case demonstrates how you can extend your portfolio’s longevity by judiciously choosing when you begin Social Security and tax efficiently withdrawing fund from your portfolio. It also presents the tradeoff as to when this single individual should begin Social Security. If he was confident that he would not live beyond age 85 then he should begin Social Security early. However, even if he should decide to begin Social Security early then he should tax-efficiently withdraw his funds since it could add a few years to his portfolio’s longevity.

By judiciously choosing when he begins Social Security and withdrawing funds tax efficiently, he was able to extend his portfolio’s longevity by about six years.

Tim Age 66 with $1,500,000 of assets

He plans on retiring in January 2010. He wants to know how long his financial portfolio may last if he spends $89,450 after taxes in 2010 and an inflation-adjusted equivalent amount each year thereafter.

Tim is a fictional representation of an actual retiree. The numbers involved in this case study are real.

Options Compared

Option 1: He begins Social Security at age 66 and withdraws the funds from the 401(k) first and then the taxable account.

Option 2: He begins Social Security at age 70 and withdraws funds from the 401(k) first and then the taxable account.

Option 3: He begins Social Security at age 70 and withdraws funds in a tax-efficient manner from his financial portfolio.

Each year, he will withdraw funds tax efficiently from his 401(k) and taxable account in a fashion that is designed to increase the longevity of her portfolio. We assume he maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year and bonds earning 3%, both historically conservative assumptions. Other assumptions are provided below.

In Strategy 1, he begins Social Security at age 66 and his portfolio runs out of money in January 2035, 25 years hence.

In Strategy 2, he begins Social Security at age 70 and his portfolio runs almost runs out of money in January 2037; his portfolio provides some of his spending needs for 2037.

In Strategy 3, he begins Social Security at age 70 and withdraws the funds tax efficiently from his portfolio, and it runs out of money in 2041; his portfolio provides much of his spending needs in 2041.

Altogether, by judiciously choosing when he begins Social Security and withdrawing funds tax efficiently, he was able to extend his portfolio’s longevity by about six years.

Assumptions: He maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. His Primary Insurance Amount for Social Security is $1,667 a month and her Full Retirement Age is 66. So, if he begins Social Security benefits at age 62, he will receive $1,250 per month, while if he waits until age 70 to begin benefits then his benefits will be $2,200 per month with all payments expressed in today’s dollars. All three strategies allocate stocks to the taxable account and bonds to the 401(k) to the degree possible while maintaining the 50% stocks-50% bonds after-tax asset allocation. Based on today’s Tax Code, he will usually be in the 28% tax bracket in retirement. We assumed inflation of 3% per year with all tax brackets, standard deduction, over 65 tax exemption, and personal exemption amount rising with inflation.

Roth Conversion - Single, Age 62 with $1,500,000 of assets

Roth Conversion: Single, Age 62 with $1,500,000 of assets

This case illustrates the advantage and disadvantage of making the right decision about whether to convert and how much to convert to a Roth IRA each year.

By intelligently managing a series of Roth Conversions, this person would be able to extend their portfolio’s longevity by more than five(5) years.

Andrea, Age 62 with $1,500,000 of assets

She plans on retiring this year. She wants to know how long her financial portfolio may last if she spends $79,700 after taxes in the first year and an inflation-adjusted equivalent amount each year thereafter.

Andrea is a fictional representation of an actual retiree. The numbers involved in this case study are real.

Options Compared

Option 1: She converts the $1 million 401(k) into a Roth IRA in the current year.

Option 2: She never converts funds to a Roth IRA.

Option 3: Each year she considers a Roth conversion and may convert some or no funds. In years when there is a partial conversion, the amount converted varies from year to year.

In all three Strategies, she is assumed to begin Social Security at age 68. In addition, with the exception of the amount, if any, converted to a Roth IRA each year, we assumed each Strategy withdrew funds tax efficiently from the 401(k) and taxable account. We assumed she maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year and bonds earning 3%, both historically conservative assumptions.

In Strategy 1 of the Figure, she converts her $1 million in a 401(k) to a Roth IRA in 2010 and her portfolio runs out of money by the end of 2039.

In Strategy 2, she never makes a Roth conversion and her portfolio runs out of money after providing some of her spending needs in 2045.

In Strategy 3, she makes a partial Roth conversion in some years and no conversion in others. Her portfolio provides all funds needed for 2045 and about $2,000 for 2046. Strategy 1 shows that she should not make a complete Roth conversion in 2010. Comparing Strategies 2 and 3 shows that partial Roth conversions adds longevity to her portfolio. Moreover, Strategy 3 would extend her portfolio’s longevity by more than five years compared to the complete Roth conversion (Strategy 1) and by about one year compared to never making a Roth conversion (Strategy 2). Additional longevity could be provided by judicious choice of the Social Security starting date.

By intelligently managing a series of Roth Conversions, Andrea was able to extend the portfolio’s longevity by more than five(5) years.

Assumptions: She maintains a 50% stocks-50% bonds after-tax asset allocation with stocks earning 7% per year including 2% dividend yield and bonds earning 3% interest per year. For the stocks, 20% of capital gains are realized each year with all gains being long term. The original cost basis of assets held in the taxable account is set at the market value. Her Primary Insurance Amount for Social Security is $2,500 a month and her Full Retirement Age is 66. Both strategies allocate stocks to the taxable account and bonds to the 401(k) to the degree possible while maintaining the 50% stocks-50% bonds after-tax asset allocation. Based on today’s Tax Code, she will usually be in the 25% tax bracket in retirement. She takes the standard deduction, and tax brackets, standard deduction amount, over 65 tax exemption amount, and personal exemption amount rise with inflation at 3% per year.

Our firm has published more about portfolio withdrawal strategies and Social Security claiming strategies than anyone else. Click on each link below to read our research published in esteemed journals and leading industry media.

This information is provided by Retiree Inc. for general informational purposes. Nothing in this website should be considered as a solicitation or a recommendation or advice to buy, sell or continue to hold securities or other investments, or take any specific action regarding any tax matters. Accordingly, certain of the securities and strategies referred to in the website may not be suitable for you; therefore, it is important that you consider the information in this website in the context of your own investment needs and objectives, including risk tolerance, investment goals and time horizon.

The data in the website is from what are considered reliable sources; however Retiree Inc. does not guarantee the accuracy, completeness or reliability of the information for third-party data. Retiree Inc. is not under any obligation to, nor intends to, update research commentary. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.

The information in this website is not intended to be a substitute for specific individualized investment planning advice. Advisory services are provided through a Retiree Inc. affiliate Retirement Benchmark LLC, a SEC registered investment advisor.